Displaying items by tag: succession planning

Thursday, 23 May 2024 11:07

Planning For the Future Boosts Growth Today

According to a white paper by SEI and FP Transitions, nearly 99% of independent financial services and advisory practices fail after the founder retires, so succession planning is not just survival but an opportunity for growth.


The paper found that although 32% of advisors claim to have a succession plan, only 17% have a binding agreement, highlighting the need for more actionable planning. But this plan helps gain new clients and encourage growth because many firms don’t have a strategy in place and can’t draw in new talent. 


Succession planning should focus on building a sustainable business that aligns with long-term goals, whether through acquisition or extending ownership. The white paper also notes that while 45% of advisors have a continuity plan, many intend to implement one soon, reflecting an increasing awareness of its importance.

Finsum: The current benefits of succession planning are growing and could improve practice performance today.

Published in Wealth Management
Wednesday, 28 February 2024 12:29

Clean Up Before Cleaning Out

As financial advisors contemplate retirement or transitioning away from their practice, preparing their book of business becomes increasingly important. This preparation, sometimes called "cleaning up the book," is a strategic move to enhance the ultimate sale price of the practice and ensure the quality of care their clients will receive after they move on.


A typical client-level profitability analysis often uncovers a familiar pattern: the 80/20 Rule, where 80% of profits come from 20% of clients. However, at the lower end of the profit scale, some advisors discover that some clients are actually costing them money after they account for all expenses and lost opportunities of their time.


Such revelations are particularly significant for advisors seeking to transfer their practice to another organization. Top-tier firms, which prioritize client interests, are reluctant to acquire a practice with unprofitable accounts and certainly not at a premium.


This insight is crucial for advisors as it also allows them time to adjust the service set they provide their least profitable clients, thus improving the profitability of their practice. By doing so, advisors not only secure the well-being of their clients for the future but also justify a fair valuation for the practice they've worked hard to build.

Finsum: By starting early, advisors looking to transition out of their practice can improve their chances of a profitable succession by cleaning up their book of business.


Published in Bonds: Total Market
Wednesday, 21 February 2024 13:49

Streamlining Your Practice for a Smoother Succession

The value of your financial advice practice hinges on several key factors when you approach succession, including client stability, profitability, and operational efficiency. The latter factor often gets overlooked, yet it plays a crucial role in attracting potential successors and maximizing your final valuation.


While a buyer assesses revenue and profit potential, they also evaluate the effort required to maintain that profitability. Inheriting a complex, inefficient practice, no matter how lucrative, could deter buyers due to the sheer "pain-in-the-backside" factor. Remember, no one wants to inherit a mess.


Therefore, streamlining your operations becomes crucial as you prepare for the transition. Focus on simplifying workflow, automating tasks, and leveraging technology to create a well-organized, easily manageable practice. This enhances your current practice and significantly increases its attractiveness to potential successors, ultimately leading to a smoother, more rewarding transition.

Finsum: When it comes to selling a practice, it’s not just how profitable it is that matters. How operationally efficient the practice is may matter more.

Published in Wealth Management

The last thing a retiring financial advisor might want to consider is making a significant change to their business. Their focus is often on finding the perfect partner to join their practice so they can transition out over the next few years. However, an overlooked option with significant benefits lies in switching broker-dealers.


Think of it as a reverse recruitment process. Just as firms entice top advisors with cutting-edge technology, competitive compensation, and career development opportunities, these same features can attract a larger pool of potential buyers for a practice. Joining a progressive firm can also expand an advisor's recruitment options, giving them access to a broader range of advisors who might be interested in taking over their business.


Making a switch might seem like extra work at the tail end of a career, but the advantages can be substantial. By aligning with a forward-thinking firm, an advisor may find a smoother transition to their succeeding partner and potentially even a higher purchase price for their practice. Advisors should not dismiss the power of changing broker-dealers as part of their succession plan – it could be the key to a successful and rewarding exit.

Finsum: Financial advisors planning their succession should explore how switching broker-dealers could be their ticket to a rewarding exit.


Published in Wealth Management
Thursday, 02 November 2023 08:17

Top Options for Succession Planning

Succession planning is increasing in importance given the aging of the industry. Succession planning is essentially a plan for the business beyond an advisors’ involvement. It’s also a contingency plan in the event of an unforeseen event. Currently, less than 30% of advisors have a firm succession plan in place. Here are some options when it comes to succession planning.


The first option is an internal transfer of clients and assets to the next generation. It requires both parties to agree upon a value for the practice. The drawback is that often there’s a large gap in this assessment. However, the upside is that the transition for clients has much less friction.


The next option is to sell the practice to an aggregator or integrator. These firms specialize in acquiring RIAs and are often funded by private equity. Typically, this involves giving up control of the business, meaning that the successor has less upside and control due to ownership being diluted. 


Another option is to sell directly to a strategic buyer, which is often another financial institution or financial advisor practice. This entails some sort of transition period to merge operations, employees, and clients. It requires carefully choosing a successor and ensuring that the culture of the two firms can mesh. 

Finsum: Succession planning is increasingly important for clients. Here are some of the most common types of succession plans.


Published in Wealth Management

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